Tesla Jumps Above $600 Million Note Conversion Price

The Street
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NEW YORK (TheStreet) -- Tesla Motors (TSLA) is poised for its biggest and most attractively priced stock offering, as the electric car maker's shares rise above a crucial stock price in the wake of its inclusion to the Nasdaq 100 Index.

In Tuesday pre-market trading, Tesla shares were rising over 3% to record highs above $125 a share on the company's addition to an index that includes the tech sector's largest and most profitable companies.

The share surge also put Tesla's stock above the conversion price of a $600 million convertible note offering the company issued in late May, which helped to shore up the Elon Musk-run company's finances amid a big 2013 growth push.

In late May, Tesla issued $600 million in convertible notes that would convert into 4.81 million shares at $124.52 apiece, as part of a note and stock offering that raised $913 million for the Model S maker.

It is unclear how quickly holders will convert their notes for Tesla shares given the company's steadily rising share price and a moderate 1.5% coupon attached to the notes. Tesla didn't immediately respond to an email seeking comment.

Still, Tesla's rise above the conversion price of its note offering may be seen as the latest in a string of successful financial maneuvers this year by founder Elon Musk.

Tesla's May capital raise at then-record-high share prices allowed the company to repay all of its outstanding loans with the Department of Energy's, in a move that trumped the negative views of short sellers and critics of the company's government financing.

While many in the media portrayed Tesla's offering as an exit from government support, the move stood out as a particularly shareholder friendly move.

The capital raise allowed Tesla to repay $465 million in DOE loans well ahead of their 2022 maturity, and a 2018 benchmark to extinguish millions of stock warrant contracts that the government carried at highly dilutive exercise prices, given current prices.

Now Tesla is poised to see even better terms for its stock, as the company seeks to use investors' capital to ramp up Model S and Model X production in coming years, while investing in the infrastructure necessary to make the electric car a mass-market product.

If all note holders were to convert their notes at current prices, Tesla would effectively see its most attractive stock raise yet. Tesla's notes convert into 4.81 million shares at $124.52 apiece, which would raise $600 million in additional equity capital. [The notes are convertible into either stock or cash].

This is what Tesla's stock issuance would look like:

Tesla priced an initial public offering of 13.3 million shares at $17 apiece, raising $226.1 million in capital on June 28, 2010.

Tesla priced a secondary offering of 6.92 million shares at $28.25 apiece, raising $195.65 million in capital on September 28, 2012.

The company priced another secondary offering of 3.93 million shares at $92.4 apiece, raising $313 million in capital on May 17, 2013.

Tesla's convertible notes would effectively convert into 4.81 million shares at $124.52 apiece, raising $600 million in capital.

In such a scenario, Musk, Tesla and its bankers Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS) would deserve praise for their canny use of stock and debt markets to solidify the company's financial footing in coming years.

Had Tesla been less opportunistic, the company easily could have found itself in a position of destroying shareholder value to raise capital and at a competitive disadvantage to competitors such as Ford (F), General Motors (GM) and Nissan.

Meanwhile, in spite of shaky financial markets over the past three years, heated political rhetoric and uncertainty over whether the electric car can be commercialized, Tesla has not had a down financing round since going public.

Elon Musk is often celebrated as an innovator on par with the likes of Henry Ford, Steve Jobs, Andrew Carnegie and Walt Disney, given his success in launching eBay (EBAY) subsidiary PayPal, Solar City (SCTY) and even the burgeoning space transport company SpaceX.